EUR/JPY Technical Analysis: Down Trend May Be Resuming

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Talking Points:

• EUR/JPY Technical Strategy: Flat
• Euro Breaks 2-Month Support, Hints at Down Trend Resumption
• Risk/Reward Considerations Argue Against Taking Short Trade

The Euro looks poised to renew its down trend against the Japanese Yen after prices broke through support guiding the correction higher from early-July lows. The cross has lagged selling in other Yen pairs as both currencies benefitted from spreading risk aversion but a degree of catch-up weakness may now materialize.

Sellers are aiming at support in the 134.98-135.11 area, marked by the August 5 low and the 50% Fibonacci expansion. A break below this barrier on a daily closing basis exposes the next downside threshold at 134.20, the 61.8% level. Alternatively, a push above the 136.03-11 zone – the intersection of trend line support-turned-resistance and the 38.2% Fib – opens the door for a challenge of the 136.96-137.16 region (July 10 close, 23.6% expansion).

While entering short is a thematically tempting proposition, risk/reward considerations argue against taking the trade. The available trading range is smaller than daily ATR, meaning even a short directly at near-term resistance would imply exposure to greater risk than the implied potential reward (assuming a stop-loss triggered on a daily closing basis as our strategy envisions). With that in mind, we will remain flat for now and wait for a more compelling opportunity to present itself.

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